Al Bhakta Discusses the Responsibilities of a Franchisee Vs. a Franchisor

There are many different ways to make money in the business world. Some people choose to start their own company, says Al Bhakta of Plano, TX, while others pick up a franchise. There is an important difference between owning your own business and running someone else’s, but here are some basics about what you need to know if you’re thinking of becoming a franchisee. Let’s start with the basics.

What is a Franchise?

A franchise is a legal agreement between a franchisor and a franchisee. It can be incredibly flexible depending on the industry. Still, in most cases, it will include using the parent company’s name and logo, products and services, training, advertising, and support.

The biggest difference between owning your own business and running someone else’s is that you are not an owner — you own part of the company without any claim to future earnings or profits. That means that when you fail — and you will fail at some point — the parent company doesn’t have to take responsibility for your actions. It also means that if you succeed, they necessarily get to share in that success.

What is a Franchisor?

A Franchisor is an individual, company, or division of a company that grants the right to use the benefit of its brand name and sells franchises to individuals or corporations.

What is a Franchisee?

This is an individual or company that has purchased the right to run a business using another company’s brand. They are bound by agreements that specify their rights and responsibilities, says Al Bhakta of Plano, TX. Many of them can be very complicated depending on the industry and what they agreed to.

Franchisors do not usually make money from their franchisees until after initial setup costs have been deducted. That means that most of the risk falls with the franchisee regarding investment, risks, and legalities. They also need to know how to manage employees effectively, keep accurate records, understand market trends, build relationships with suppliers, determine pricing for effective sales growth within their geographical area, know how to follow established marketing plans.

What’s the Difference?

The biggest difference between a franchisor and a franchisee is that one runs the company while the other part-owns it. In either case, you plan to take responsibility for running a profitable business, but when you run your own business, you can make decisions about how to do that from day to day. When you own a franchise, you’re following established rules — and if those rules aren’t working for you, then there’s not much you can do about it except change locations or sell your franchise.

In either case, your success or failure will depend on several factors, including location, market, marketing plan, staffing, leadership capabilities, etc. The difference is what each party knows going into the deal and what they expect from it.

The Responsibilities of A Franchisor

A franchisor is responsible for overseeing the franchisees in their network. They need to make sure, says Al Bhakta, that they uphold their brand name and operate within the franchise agreement’s parameters. Some of their responsibilities include:

Inspections

The Franchisor conducts periodic inspections to ensure that the franchisee’s business is up to standard.

Training

They make sure that employee training happens and continues throughout the life of the franchise agreement.

Coaching

Franchisors coach franchisees on methods for increasing sales and profits, improving management practices, reducing costs, etc. These are all important areas that impact growth within a company because if you can’t make money, it doesn’t matter how well your business is run; without investment, development stagnates.

The Responsibilities of A Franchisee

Responsibilities of a franchisee will often include finding an appropriate location for their business, finding employees, developing product packaging, training staff, creating menus and prices, and adhering to safety regulations. They also include understanding pricing structures for wholesale suppliers (that means you get it cheaper than retail), understand why certain products sell better than others at different times of the year.

A few important parts of being a successful franchisee, says Al Bhakta, are:

Market Knowledge

It’s essential that you know where your market is. To do this, you’ll need to know about supply and demand within your region. If there is a high demand for your product and you find yourself with an abundance of supply, it might be time to raise prices and watch the money roll in.

Hiring and Training Employees

Franchisees make sure that their employees are up to date with changes in industry standards or requirements. This is especially important if you’re hiring people from outside of your industry because they’ll need to learn as they go. For them to do that, you’ll need to invest time into developing their skills and knowledge as it pertains to your company’s goals.

Customer Service

It should be a goal of every franchisee to make their customers happy, but sometimes corporate rules get in the way of this necessity. For instance, there may be a rule which states that employees must wait until a customer has given them an opening sentence before offering help or suggestions with product choice.

Adhering to Franchise Standards

Franchisees need to understand how much inventory they need to have on hand at any given time so it doesn’t run out, leaving customers frustrated and short-handed in the process.

Understanding Market Trends

This means understanding what products are selling well when to put yourself ahead of competitors. If your competitor is struggling with sales, this may be a good opportunity to raise prices without losing customers because they’re already shopping elsewhere.

The Bottom Line

Since franchisors and franchisees have different responsibilities, they will both face challenges when running a business. For example, an individual needs to know their market to make pricing decisions instead of blindly following the competition.

The bottom line is that whether you’re considering buying into a franchise or starting your own business completely from scratch, there are things you need to consider before making any decision.